EMC Working Papers

In the first quarter of 2020, the oil market was as turbulent as a hurricane hurting the US Gulf Coast. The dramatic collapse of oil demand pushed oil prices to new territories. The situation sets a gloomy future for weaker oil producers in the upstream sector. This led to a fragile coalition between crude oil producing countries.

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A pressing issue for policy makers

Availability and affordability of energy have become pressing issues. Particularly in the poorest areas on the planet where energy infrastructures is still insufficiently developed, but in more mature countries as well, where the less favoured have too often no choice but to accept poor housing conditions characterised by low energy efficiency and hence expensive energy bills. Today, access to affordable energy is considered to be a basic human right and as such a key goal for policy makers. In this context the concept of “fuel poverty” has emerged. Robinson et al. (2018)1 define fuel poverty as « an inability to attain the socially and materially necessitated domestic energy services that ensure the wellbeing of a household, allowing them to participate meaningfully in society ». This view is aligned with the general definition of poverty and social exclusion2. Of course, a large number of academic studies, surveys and reports addressing this specific theme have been produced. Their aim is first to reveal the growing importance of this problem and its related potential severe consequences, then to identify the mechanisms involved in the rise of this form of poverty and to imagine indicators to identify the population at risk. The ultimate goal is of course to propose guidance for corrective actions.

A relevant approach? 

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This article presents the main conclusions of a survey carried out as part of a research project on "risk management in the energy industry" sponsored by KPMG/ESCP Europe Chair Risk Strategy and Performance.

Abstract

The success of shale gas in the US has prompted companies to examine the possibilities of replicating the shale gas production and market in Europe. But in doing so they face various difficulties including issues such as the different geology, the density of European population, the legal, fiscal and land-use particularities and the service industry for onshore. To add to the difficulties, there is considerable environmental skepticism and opposition from lobby groups and media regarding shale gas drilling in Europe. Hence, a comprehensive assessment of risks of shale gas development in Europe is helpful to prevent harms as well as to take into consideration investment and growth opportunities. In this paper we outline six major clusters of risks associated with developing the shale gas industry in Europe: social, environmental, economic, regulatory, geopolitical, and technological. The outcome of this paper is extremely useful to companies' leaders willing to invest in shale gas in some European countries. This dimension of contemplating the risks associated with shale gas development, from the companies' point of view, has received less attention so far and provides opportunities for further research, particularly from management scholars.

Index Terms-- Shale gas, energy security, energy policy, energy market.

This paper proposes a set of VaR models appropriate to capture the dynamics of energy prices and subsequently quantify energy price risk by calculating VaR and ES measures. Amongst the competing VaR methodologies evaluated in this paper, besides the commonly used benchmark models, a MC simulation approach and a Hybrid MC with Historical Simulation approach, both assuming various processes for the underlying spot prices, are also being employed. All VaR models are empirically tested on eight spot energy commodities that trade futures contracts on NYMEX and the Spot Energy Index. A two-stage evaluation and selection process is applied, combining statistical and economicmeasures, to choose amongst the competing VaR models. Finally, both long and short trading positions are considered as it is extremely important for energy traders and risk managers to be able to capture efficiently the characteristics of both tails of the distributions.

Most executives know that overarching paints of plausible futures will profoundly affect the competitiveness and survival of their organisation. Initially from the perspective of Shell, this article discuses oil scenarios and their relevance for upstream investments. Scenarios are then incorporated into generative explanation and its principal instrument, namely agent-based computational laboratories, as the new standard of explanation of the past and the present and the new way to structure the uncertainties of the future. The key concept is that the future should not be regarded as 'complicated' but as 'complex', in that there are uncertainties about the driving forces that generate unanticipated futures, which cannot be explored analytically. 

The ACEGES (Agent-based Computational Economics of the Global Energy System) 1.0 model is an agent-based model of conventional oil production for 93 countries. The model accounts for four key uncertainties, namely Estimated Ultimate Recovery (EUR), estimated growth in oil demand, estimated growth in oil production and assumed peak/decline point. This documentation provides an overview of the ACEGES model capabilities and an example of how it can be used for long-term (discrete and continuous) scenarios of conventional oil production.

Keywords:

Oil production, ACEGES, agent-based model, energy scenarios, oil forecasting